South Korean companies facing spike in labor cost due to a series of measures and pressure from the labor-friendly government to increase income for wage-earners and permanent jobs turned more negative about business sentiment and prospects.

The Korea Economic Research Institute (KERI) business survey index (BSI) measuring business sentiment of 600 largest companies retreated to 93.2 in December from 94.4 in the previous month. A reading below 100 indicates that more businesses are pessimistic about future business conditions than those who are not.

The BSI for big companies stayed below 100 for 19 months. It is the first time the reading stayed under 100 for full year since 1997-1998 Asian financial crisis.

Business conditions and prospects have been uncertain throughout the year both on the external and domestic front. At home, leadership had been in vacuum after the president was impeached and removed until the snap election in May. The new liberal president mostly recruited anti-chaebol civilian activists as his aides and ministers, making the economic agenda decisively pro-labor. Trade frictions and retaliations also turned the external front unfavorable.

Sentiment was most poor among food, metal processing, and electronics and communications equipment sector.

Unless there is structural reform in the labor market and radical deregulations, sentiment of the Korean Inc. won’t likely pick up, said a KERI official.

By Hwang Soon-min and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]